Consider a bank with the balance sheet below. The bank has net profit after taxes of...
Consider a bank with the balance sheet below. The bank has net profit after taxes of $3 million
| Assets (mil) | Liabilities (mil) |
| Reserves $10 | Deposits $110 |
| Loans $75 | Borrowing $15 |
| Securities $40 |
|
Calculate the return on equity (ROE), Enter as a percent, two decimals |
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Homework Answers
|
Assets (mil) |
Liabilities (mil) |
|
Reserves $10 |
Deposits $110 |
|
Loans $75 |
Borrowing $15 |
|
Securities $40 |
|
|
Total $125 |
Total $125 |
From the above balance sheet Shareholders equity = $125 million
Net profit after taxes = $3 million
Return of Equity (ROE) is the ratio between net income after tax and shareholder’s equity.
ROE = Income after tax ÷ Shareholders equity
ROE = ($3 million ÷ $125 million) * 100 = 2.4%
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